Origins As The Haloid Company in 1906

Xerox can trace its roots to 1906, when a photography-paper business named The Haloid Company was established in Rochester, New York. Its neighbor, Eastman Kodak Company, ignored the company, and Haloid managed to build a business on the fringe of the photography market. In 1912 control of the company was sold for $50,000 to Rochester businessman Gilbert E. Mosher, who became president but left the day-to-day running of the company to its founders.

Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company's market share, Haloid's board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid's sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided that Haloid should buy the Rectigraph Company, a photocopying machine manufacturer that used Haloid's paper. To help pay for the acquisition, Haloid went public in 1936, and selling Rectigraphs became an important part of Haloid's business.

In 1936 Haloid's 120 employees went on strike for benefits and higher wages. When Mosher proved intransigent, Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the Armed Forces needed high-quality photo-graphic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.

Amidst this, Haloid needed to come up with new products, particularly following a showdown between Mosher, who wanted to sell Haloid, and Wilson, who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio, to produce a machine based on a new process called xerography.

Xerography, a word derived from the Greek words for "dry" and "writing," was the invention of Chester Carlson. Carlson was born in Seattle, Washington, in 1906 and became a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, Carlson in 1938 invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.

Debut of the XeroX Copier in 1949

In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, initially spelled with a capital X at the end. The machine, which required much of the processing to be done manually, was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid's large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing, an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.

In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to such corporations as RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the State of Michigan. Meanwhile, Haloid's other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.

In 1953 Carlson received the Edward Longstreth Medal of Merit for the invention of xerography from the Franklin Institute. In 1955 Haloid revamped its 18 regional offices into showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid's semiautomatic copying machine. In 1956 Haloid President Joe Wilson, Joseph R. Wilson's son, formed an overseas affiliate called Rank Xerox with the Rank Organisation Plc, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market.

1960: The Xerox 914 Copier, an Instant Hit

In 1958 Haloid changed its name to Haloid Xerox Inc., reflecting its belief that the company's future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier. Introduced in 1960, it was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, so it placed ads in magazines and on television programs where it hoped business owners would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.

Demand for the 650-pound 914 model exceeded Haloid Xerox's most optimistic projections, despite its large size. Fortune later called the copier "the most successful product ever marketed in America." Sales and rental of xerographic products doubled in 1961 and kept growing. In 1961 the company was listed on the New York Stock Exchange, changed its name to Xerox Corporation, and photography operations were placed under the newly created Haloid photo division. In 1962 Xerox formed Fuji Xerox Co., Ltd. in Japan with Fuji Photo Film Co., Ltd. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914 copier, more than Haloid's total earnings from 1950 to 1959, and the 914 had led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914, Although this machine sold well, it was not very profitable, and Xerox depended on its larger machines thereafter.

With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox's chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States and, in 1969, moved its headquarters to Stamford, Connecticut.

In the late 1960s Xerox began to focus its efforts on the concept of an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.

In 1973 scientists at PARC invented what may have been the world's first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In fact, in December 1989 Xerox would sue Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple cofounder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox's work, and thus made it original.

PARC's innovations were largely overlooked by Xerox. The computer division and the copier division competed for resources and failed to communicate. Products were released by the office products division in Dallas, Texas, which PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, which further stifled innovation.

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Our strategic intent is to help people find better ways to do great work—by constantly leading in document technologies, products and services that improve our customers' work processes and business results.

Struggling Through the 1970s and 1980s

In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM's machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM's reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became a defendant in several antitrust violation investigations, including a lawsuit by the Federal Trade Commission. Distracted from its market by legal battles, Xerox lost its lead in the industry when Kodak came out with a more sophisticated copier. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.

According to most critics, Xerox had become inefficient during this time, as its executives had concentrated too heavily on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine, it failed to challenge the new products on the market, and Xerox's market share dropped.

By 1985 Xerox's worldwide plain-paper copier share had dropped to 40 percent, from 85 percent in 1974. Yet Xerox's revenues grew from $1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, thus depleting its lease base.

Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns per month. The Japanese firm Ricoh Company, Ltd., however, introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon Inc., was challenging Xerox's market share in higher-end machines.

In the late 1970s Xerox began reorganizing, making market share its goal and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share, but intense price competition kept copier revenues around $8 billion for most of the 1980s.

In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM's and captured over 20 percent of the electric typewriter market. By January 1983 Xerox had unveiled a Memorywriter that could store large amounts of data internally. In 1982 the 10-Series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-Series machines used technology developed at PARC, which was becoming more integrated with the company. Xerox began gaining market share for the first time in years, and morale improved.

Xerox also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved an expensive flop, however, and by 1989 the company closed its workstation hardware business. Xerox also moved to protect its 50 percent share of the high-end market in the United States with machines that made 70 or more copies per minute. The major high-end competition was Kodak, but the Japanese, led by Ricoh, were again launching a drive for this market.

During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster Inc., a property casualty insurer, and in 1984 it formed Xerox Financial Services, Inc. (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50 percent of Xerox's income—$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox "A" credit rating.

Key Dates:

1906:

The Haloid Company is founded in Rochester, New York, as a photography-paper business.

1935:

Haloid buys Rectigraph Company, a maker of photocopying machines.

1936:

Haloid makes its first public offering of stock.

1938:

Chester Carlson invents a method of transferring images from one piece of paper to another using static electricity, a process dubbed xerography.

1947:

Haloid enters into an agreement with Battelle Memorial Institute to produce a photocopying machine based on xerography.

1949:

Company introduces the XeroX Copier.

1956:

Haloid expands into Europe through the creation of Rank Xerox, a joint venture with the Rank Organisation Plc, a British film company.

1958:

Company changes its name to Haloid Xerox Inc.

1960:

Introduction of the Xerox 914, the first automatic, plain-paper copier, proves to be a huge success.

1961:

Company is renamed Xerox Corporation, and its stock is listed on the New York Stock Exchange.

Xerox sells half of its stake in Fuji Xerox to Fuji Photo Film for more than $1.3 billion; manufacturing outsourcing relationship with Flextronics International Ltd. begins.

2002:

Company agrees to pay $10 million civil penalty to settle the charges of accounting fraud.

Xerox spent more than $3 billion on research and development in the 1980s looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.

A Late 1980s Comeback

In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox's comeback was so impressive that in 1989 its Business Products and Systems unit won the U.S. Congress's Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox had demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition.

In 1990 when David T. Kearns, CEO since 1932, retired to become U.S. Deputy Secretary of Education, and Paul A. Allaire, a career Xerox man, was named to replace him, industry analysts speculated that Allaire would have to repeat the feats of the 1970s if Xerox were to survive as an independent corporation. A restructuring of company management occurred almost immediately. The office of the president was transformed into a document processing corporate office led by Allaire and including Executive Vice-Presidents A. Barry Rand and Vittorio Cassoni, and Senior Vice-Presidents Mark B. Myers and Allan E. Dugan. Two years later, Xerox announced plans to restructure the company as well. Three customer service operations units were created in Connecticut, New York, and England. In addition, nine document processing business units were established, each of which was headed by a president responsible for the profitability of the unit.

During the seven-month period from September 1990 to March 1991, Xerox introduced five new types of computer printers: the Xerox 4350, Xerox 4197, Xerox 4135, Xerox 4235, and Xerox 4213. These printers were designed to handle a wide variety of office needs from two-color printing to desktop laser printing. In October 1990 the Docu-Tech Production Publisher signaled Xerox's intent to take advantage of what the company foresaw as an industry move from offset printing to electronic printing and copying.

The introduction of the Xerox 5775 Digital Color Copier was met with great fanfare and was expected to rejuvenate sales. Xerox also continued to update and improve its facsimile machines by developing a personal-sized model that could be used as a copier as well as a telephone, and by developing thermal, recyclable fax paper. In May 1992 Xerox introduced Paperworks, software making it possible to send documents to a fax machine directly from a PC.

Despite these new products, financial and legal woes continued to plague Xerox in the early 1990s as American economic conditions worsened. After earnings of $235 million in the fourth quarter of 1990, Xerox reported only $91 million in profits for the same period the following year. Earlier in 1990, just four months after the creation of the X-Soft division, which was to develop and market the company's software products, Xerox announced that it would lay off 10 percent of X-Soft's employees. In February 1992 the company offered severance pay to 6,000 of its American employees in an attempt to reduce the workforce by 2,500 by July.

By the end of 1991, Xerox was announcing the sale of three of its insurance wholesalers. Crum and Forster sold Floyd West & Co. and Floyd West of Louisiana to Burns & Wilcox Ltd. London Brokers Ltd. was sold to Crump E & S. Moreover, several lawsuits resulted in losses for Xerox during this time. In February 1992 Xerox was ordered to pay Gradco Systems, Inc. $2.5 million to settle a patent dispute, and a suit settled in favor of Monsanto a month later was expected to cost Xerox $142 million to clean up a hazardous waste dump site.

Emergence of The Document Company in the Mid-1990s

With its core office products businesses on the upswing, Xerox announced in January 1993 that it intended to exit from insurance and its other financial services businesses. Later that year Crum and Forster was renamed Talegen Holdings Inc. and was restructured into seven stand-alone operating groups in order to facilitate their piecemeal sale. This exit took several years, however, and was delayed when a 1996 deal to sell several units to Kohlberg Kravis Roberts & Company for $2.36 billion collapsed. During 1995 two of the groups were sold for a total of $524 million in cash. In 1997 three more were sold for a total of $890 million in cash and the assumption of $154 million in debt. Then in January 1998 Xerox completed the sale of Westchester Specialty Group, Inc. to Bermuda-based ACE Limited for $338 million, less $70 million in transaction-related costs. Finally, Xerox in August 1998 sold its last remaining insurance unit, Crum & Forster Holdings, Inc., to Fairfax Financial Holdings Limited of Toronto for $680 million.

As it was exiting from financial services, Xerox was also beginning to shed its image as a copier company. In 1994 Xerox began calling itself The Document Company to emphasize the wide range of document processing products it produced. A new logo included a red "X" that was partially digitized, representing the company's shift from analog technologies to digital ones. A number of new digital products were developed over the next several years, including digital copiers that also served as printers, fax machines, and scanners (so-called multi-function devices). From 1995 to 1997 revenue from analog copiers was virtually stagnant, even falling slightly, whereas revenue from digital products enjoyed double-digit growth, increasing to $6.7 billion by 1997.

Xerox also shifted focus from black-and-white to highly sought-after color machines, with revenues from color copying and printing increasing 46 percent to $1.5 billion in 1997. The most notable introduction here was the DocuColor 40, launched in 1996, which captured more than 50 percent of the high-speed color copier market based on its ability to print 40 full-color pages per minute. Revitalized new product development at Xerox resulted in the introduction of 80 new products in 1997 alone, the most in company history and twice the number of the previous year. More Xerox products were being developed for the small office/home office market, with prices low enough that the company increasingly marketed its products via such retailers as CompUSA, Office Depot, OfficeMax, and Staples.

However, the new Xerox was about more than just office products. The company introduced DocuShare document-management software in 1997, providing a system for users to post, manage, and share information on company intranets. Xerox also gained the leading market share position in the burgeoning document outsourcing services sector through the 1997-created Document Services Group. This group offered such services as the creation of digital libraries, the design of electronic-commerce systems for Internet-based transactions, as well as professional document consulting services. In May 1998 Xerox bolstered its Document Services Group through the $413 million acquisition of XLConnect Solutions Inc. (renamed Xerox Connect) and its parent Intelligent Electronics, Inc. XLConnect specialized in the design, building, and support of networks for companywide document solutions.

The mid-1990s also saw Xerox launch a restructuring in 1994, leading to 10,000 job cuts over a three-year period. In February 1995 the company paid The Rank Organisation about $972 million to increase its stake in Rank Xerox to 80 percent. Then in June 1997 Xerox spent an additional $1.5 billion to buy Rank out entirely. With full control of the unit, Xerox renamed it Xerox Limited. That same month G. Richard Thoman, who had been senior vice-president and chief financial officer at IBM, was named president and chief operating officer of Xerox, with Allaire remaining chairman and CEO.

In April 1998 Xerox announced yet another major restructuring, as its shift to the digital world led it to spend more on overhead than its competitors. The company eliminated 9,000 jobs over the next two years, taking a $1.11 billion after-tax charge in the second quarter of 1998 in the process. The cuts came at a time when Xerox was enjoying record sales and earnings as well as a surging stock price, so the company was clearly proactive in maintaining the momentum it had gained through its impressive 1990s resurgence.

Late 1990s Downfall/Early 2000s Turnaround Effort

This resurgence, however, came to a crashing halt during the later months of 1999. For both the third and fourth quarters, Xerox was forced to issue warnings that its profits would be well below the expectations of Wall Street analysts, sending its stock tumbling. Sales and profits were hurt by a number of factors, several of which were out of the company's control: the strength of the dollar against European currencies; heightened competition from Japanese rivals, particularly Canon, which launched new lines of midrange and high-end copiers that ate into Xerox's market share; a slump in the sales of high-end copiers and printing systems late in the year because of Y2K fears; and a severe economic downturn in Brazil, a longtime key market for Xerox that had been responsible for about 10 percent of sales and an even-larger portion of profits. On top of these challenges, Xerox shot itself in the foot by botching two corporate restructurings. A consolidation of customer administration centers launched in 1998 led to chaos, including delayed and lost orders, unreturned phone calls, and billing errors. During 1999 Xerox reorganized its worldwide sales force, shifting about half of the 30,000-person operation from a geographic focus to an industry focus. Although this change was long overdue, it was not implemented smoothly, leading to disgruntled staffers, furious customers, and lost sales. Also burdening the company was servicing some $16 billion in total debt.

Early in 2000 Xerox acquired the color printing and imaging unit of Tektronix, Inc. for $925 million. The move made Xerox the number two player in the U.S. market for color laser printers, trailing only Hewlett-Packard Company. The deal was an important one, coming at a time when in many offices the proliferating computer printer was taking over some of the functions of the copier. Before it could bear fruit, however, a management shakeup jolted the company. As the firm's financial performance deteriorated, Thoman was forced to resign as CEO in May 2000. Allaire temporarily reassumed that position, and company veteran Anne M. Mulcahy was named president. By this time, Xerox's stock had fallen 60 percent from its level one year earlier.

In October 2000 the company reported a third-quarter loss of $167 million—its first quarterly loss in 16 years—and initiated the first of a string of restructuring programs. Aiming to slash $1 billion in annual operating expenses (6 percent of its total costs), Xerox placed a number of assets on the block. Late in the year it sold its subsidiaries in China and Hong Kong to Fuji Xerox for $550 million. Then in March 2001 Xerox sold half of its stake in Fuji Xerox itself to Fuji Photo Film for more than $1.3 billion in cash, reducing its interest in the joint venture to 25 percent. In another key move, Xerox outsourced about half of its worldwide manufacturing operations to Flextronics International Ltd., at the same time selling to Flextronics plants in Canada, Mexico, Malaysia, the Netherlands, and Brazil. Several other noncore operations were also sold off as part of this overhaul, which in total culled 11,200 positions from the payroll. During 2001 a separate restructuring, which aimed to sharpen the company's focus, saw Xerox eliminate product lines aimed at the small office/home office business segment. Approximately 1,200 more employees were laid off. Xerox eliminated its stock dividend that year in order to conserve cash, and in August, Mulcahy was named CEO. She replaced Allaire as chairman in early 2002.

Late in 2000 the Securities and Exchange Commission (SEC) launched an investigation into Xerox's accounting practices for the period from 1997 to 2000. The SEC eventually found that the company had been improperly accounting for revenues associated with office equipment it leased to customers, booking more of the lease revenue up front than was proper and thereby artificially—if temporarily—inflating revenue and, according the SEC, misleading investors. In April 2002 Xerox agreed to pay a record $10 million civil penalty to settle the charges. A few months later it restated its results for 1997 to 2001, shifting $1.41 billion in pretax income among the years. For instance, for 1998 the company now reported a pretax loss of $13 million rather than the previously reported pretax profit of $579 million, whereas the pretax loss for 2001 of $293 million was trimmed to $71 million. The SEC went after several Xerox executives as well. In June 2003 the agency reached an agreement with six executives (five former and one current, including Allaire, Thoman, and former CFO Barry Romeril), who agreed to pay $22 million in fines and other penalties. The SEC was highly critical of the managers, contending that they had personally profited from bonuses and stock sales that had been based on false financial results.

In addition to shedding unprofitable businesses and lines of business, and eliminating tens of thousands of workers from the workforce (which was reduced by one-third from the beginning of 2001 to the end of 2003, from 92,500 to 61,100), Xerox vastly improved its balance sheet. During 2002 a $7 billion line of credit was successfully renegotiated, while the following year saw the completion of a $3.6 billion recapitalization plan that included public offerings of common stock, the issuance of convertible preferred stock, and the securing of a new $1 billion credit facility. Total debt was reduced from $18.64 billion in 2000 to $11.17 billion in 2003. Perhaps most importantly, Xerox moved aggressively to regain lost market share by introducing 38 new products during 2002 and 2003 as well as a wide range of new document-related services. The product line placed particular emphasis on digital and color copiers and enhanced multifunction devices capable of printing, copying, scanning, faxing, and e-mailing.

Through Mulcahy's able leadership and dogged pursuit of a turnaround, Xerox was able to post strong results for 2003. Net income of $360 million was the firm's highest profit level since 1999. Xerox's stock rebounded in 2003 and 2004, although it remained well below the levels of 1999 and early 2000. Debt was reduced further during 2004 to less than $10 billion, and the now cash-rich company was poised to begin pursuing acquisitions again. From the real possibility of bankruptcy when she took over, Mulcahy had engineered at least the beginnings of a remarkable comeback, though the competitive environment showed no sign of becoming less brutal.

Xerox Corporation, virtually synonymous with photocopying, now touts itself as The Document Company. In addition to its flagship copiers, Xerox also makes production publishers, electronic printers, fax machines, scanners, networks, software, and supplies. The company is also a market leader in the area of document outsourcing services. Xerox markets its products in more than 130 countries. Its Xerox Limited subsidiary (formerly Rank Xerox, a joint venture with the Rank Organisation Pic of the United Kingdom) distributes Xerox products in Europe, Africa, the Middle East, and parts of Asia (including Hong Kong, India, and China). Xerox Co., Limited—a joint venture with Photo Film Company Limited —develops, manufactures, and distributes document processing products in Japan and the Pacific Rim (including Australia, New Zealand, Singapore, and Malaysia).

Origins As The Haloid Company in 1906

Xerox can trace its roots to 1906, when a photography-paper business named the Haloid Company was established in Rochester, New York. Its neighbor, Kodak, ignored the company, and Haloid managed to build a business on the fringe of the photography market. In 1912 control of the company was sold for $50,000 to Rochester businessman Gilbert E. Mosher, who became president but left the day-to-day running of the company to its founders.

Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company’s market share, Haloid’s board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid’s sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided that Haloid should buy the Rectigraph Company, a photocopying machine manufacturer that used Haloid’s paper. Haloid went public to raise the money, and selling Rectigraphs became an important part of Haloid’s business.

In 1936 Haloid’s 120 employees went on strike for benefits and higher wages. When Mosher proved intransigent, Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the Armed Forces needed high-quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.

Amidst this, Haloid needed to come up with new products, particularly following a showdown between Mosher, who wanted to sell Haloid off, and Wilson, who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio, to produce a machine based on a new process called xerography.

Xerography, a word derived from the Greek words for “dry” and “writing,” was the invention of Chester Carlson. Carlson was born in Seattle, Washington, in 1906 and became a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, Carlson in 1938 invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.

The XeroX Copier Debuts in 1949

In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, initially spelled with a capital X at the end. The machine, which required much of the processing to be done manually, was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid’s large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing—an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.

In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to such corporations as RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the State of Michigan. Meanwhile, Haloid’s other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.

In 1953 Carlson received the Edward Longstreth Medal of Merit for the invention of xerography from the Franklin Institute. In 1955 Haloid revamped its 18 regional offices into showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid’s semiautomatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson’s son, formed an overseas affiliate called Rank Xerox with the Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market.

1960: The Xerox 914 Copier Becomes an Instant Hit

In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company’s future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier. Introduced in 1960, it was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, so it placed ads in magazines and on television programs where it hoped business owners would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.

Demand for the 650-pound 914 model exceeded Haloid-Xerox’s most optimistic projections, despite its large size. Fortune later called the copier “the most successful product ever marketed in America.” Sales and rental of xerographic products doubled in 1961 and kept growing. In 1961 the company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations were placed under the newly created Haloid photo division. In 1962 Xerox formed Xerox in Japan with Photo Film Company. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914 copier, more than Haloid’s total earnings from 1950 to 1959, and the 914 had led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914; although this machine sold well, it was not very profitable, and Xerox depended on its larger machines thereafter.

With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox’s chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States and, in 1969, moved its headquarters to Stamford, Connecticut.

In the late 1960s Xerox began to focus its efforts on the concept of an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.

Scientists at PARC invented what may have been the world’s first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In fact, in December 1989 Xerox would sue Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple cofounder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox’s work, and thus made it original.

Company Perspectives:

Our strategic intent is to be the leader in the global document market, providing document solutions that enhance business productivity. Since our inception, we have operated under the guidance of six core values: we succeed through satisfied customers; we aspire to deliver quality and excellence in all that we do; we require premium returns on assets; we use technology to deliver market leadership; we value our employees; we behave responsibly as a corporate citizen.

PARC’s innovations were largely overlooked by Xerox; the computer division and the copier division competed for resources and failed to communicate. Products were released by the office
products division in Dallas, Texas, that PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, which further stifled innovation.

Struggling Through the 1970s and 1980s

In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM’s machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM’s reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became a defendant in several antitrust violation investigations, including a lawsuit by the Federal Trade Commission. Distracted from its market by legal battles, Xerox lost its lead in the industry when Kodak came out with a more sophisticated copier. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.

According to most critics, Xerox had become inefficient during this time, as its executives had concentrated too heavily on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine, it failed to challenge the new products on the market, and Xerox’s market share dropped.

By 1985 Xerox’s worldwide plain-paper copier share had dropped to 40 percent, from 85 percent in 1974. Yet Xerox’s revenues grew from $1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, thus depleting its lease base.

Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns per month. The Japanese company Ricoh, however, introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging Xerox’s market share in higher-end machines.

In the late 1970s Xerox began reorganizing, making market share its goal and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share but intense price competition kept copier revenues around $8 billion for most of the 1980s.

In 1981 Xerox finally began releasing new products, beginning with the Memory writer typewriter. This typewriter soon outsold IBM’s and captured over 20 percent of the electric typewriter market. By January 1983 Xerox had unveiled a Memory writer that could store large amounts of data internally. In 1982 the 10-Series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-Series machines used technology developed at PARC, which was becoming more integrated with the company. Xerox began gaining market share for the first time in years, and morale improved.

Xerox also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved an expensive flop, however, and by 1989 the company planned to close its workstation hardware business. Xerox also moved to protect its 50 percent share of the high-end market in the United States with machines that made 70 or more copies per minute. The major high-end competition was Kodak, but the Japanese—led by Ricoh—were again launching a drive for this market.

During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster, a property casualty insurer, and in 1984 it formed Xerox Financial Services (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50 percent of Xerox’s income—$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox “A” credit rating.

Xerox spent more than $3 billion on research and development in the 1980s looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.

A Late 1980s Comeback

In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox’s comeback was so impressive that in 1989 its Business Products & Systems unit won Congress’s Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox had demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition.

In 1990 when David T. Kearns, CEO since 1932, retired to become U.S. Deputy Secretary of Education, and Paul A. Allaire, a career Xerox man, was named to replace him, industry analysts speculated that Allaire would have to repeat the feats of the 1970s if Xerox was to survive as an independent corporation. A restructuring of company management occurred almost immediately. The office of the president was transformed into a document processing corporate office led by Allaire and including executive vice-presidents A. Barry Rand and Vittorio Cassoni, and senior vice-presidents Mark B. Myers and Allan E. Dugan. Two years later, Xerox announced plans to restructure the company as well. Three customer service operations units were created in Connecticut, New York, and England. In addition, nine document processing business units were established, each of which was headed by a president responsible for the profitability of the unit.

During the seven-month period from September 1990 to March 1991, Xerox introduced five new types of computer printers: the Xerox 4350, Xerox 4197, Xerox 4135, Xerox
4235, and Xerox 4213. These printers were designed to handle a wide variety of office needs from two-color printing to desktop laser printing. In October 1990 the Docu-Tech Production Publisher signaled Xerox’s intent to take advantage of what the company foresaw as an industry move from offset printing to electronic printing and copying.

The introduction of the Xerox 5775 Digital Color Copier was met with great fanfare and was expected to rejuvenate sales. Xerox also continued to update and improve its facsimile machines by developing a personal-sized model that could be used as a copier as well as a telephone, and by developing thermal, recyclable fax paper. In May 1992 Xerox introduced Paperworks, software making it possible to send documents to a fax machine directly from a PC.

Despite these new products, financial and legal woes continued to plague Xerox in the early 1990s as American economic conditions worsened. After earnings of $235 million in the fourth quarter of 1990, Xerox reported only $91 million in profits for the same period the following year. Earlier in 1990, just four months after the creation of the X-Soft division, which was to develop and market the company’s software products, Xerox announced that it would lay off ten percent of X-Soft’s employees. In February 1992 the company offered severance pay to 6,000 of its American employees in an attempt to reduce the workforce by 2,500 by July.

By the end of 1991, Xerox was announcing the sale of three of its insurance wholesalers. Crum and Forster sold Floyd West & Co. and Floyd West of Louisiana to Burns & Wilcox Ltd. London Brokers Ltd. was sold to Crump E & S. Moreover, several lawsuits resulted in losses for Xerox during this time. In February 1992 Xerox was ordered to pay Gradco Systems, Inc. $2.5 million to settle a patent dispute; and a suit settled in favor of Monsanto a month later was expected to cost Xerox $142 million to clean up a hazardous waste dump site.

The Document Company Emerges in the Mid-1990s

With its core office products businesses on the upswing, Xerox announced in January 1993 that it intended to exit from insurance and its other financial services businesses. Later that year Crum and Forster was renamed Talegen Holdings Inc. and was restructured into seven stand-alone operating groups in order to facilitate their piecemeal sale. This exit took several years, however, and was delayed when a 1996 deal to sell several units to Kohlberg Kravis Roberts & Company for $2.36 billion collapsed. During 1995 two of the groups were sold for a total of $524 million in cash. In 1997 three more were sold for a total of $890 million in cash and the assumption of $154 million in debt. Then in January 1998 Xerox completed the sale of Westchester Specialty Group, Inc. to Bermuda-based ACE Limited for $338 million, less $70 million in transaction-related costs. Finally, Xerox in August 1998 sold its last remaining insurance unit, Crum & Forster Holdings, Inc., to Fairfax Financial Holdings Limited of Toronto for $680 million.

As it was exiting from financial services, Xerox was also beginning to shed its image as a copier company. In 1994 Xerox began calling itself The Document Company to emphasize the wide range of document processing products it produced. A new logo included a red “X” that was partially digitized, representing the company’s shift from analog technologies to digital ones. A number of new digital products were developed over the next several years, including digital copiers that also served as printers, fax machines, and scanners (so-called multifunction devices). From 1995 to 1997 revenue from analog copiers was virtually stagnant, even falling slightly, whereas revenue from digital products enjoyed double-digit growth, increasing to $6.7 billion by 1997.

Xerox also shifted focus from black-and-white to highly sought-after color machines, with revenues from color copying and printing increasing 46 percent to $1.5 billion in 1997. The most notable introduction here was the DocuColor 40, launched in 1996, which captured more than 50 percent of the high-speed color copier market based on its ability to print 40 full-color pages per minute. Revitalized new product development at Xerox resulted in the introduction of 80 new products in 1997 alone, the most in company history and twice the number of the previous year. More Xerox products were being developed for the small office/home office market, with prices low enough that the company increasingly marketed its products via such retailers as CompUSA, Office Depot, OfficeMax, and Staples.

However, the new Xerox was about more than just office products. The company introduced DocuShare document-management software in 1997, providing a system for users to post, manage, and share information on company intranets. Xerox also gained the leading market share position in the burgeoning document outsourcing services sector through the 1997-created Document Services Group. This group offered such services as the creation of digital libraries, the design of electronic-commerce systems for Internet-based transactions, as well as professional document consulting services. In May 1998 Xerox bolstered its Document Services Group through the $413 million acquisition of XLConnect Solutions Inc. (renamed Xerox Connect) and its parent Intelligent Electronics, Inc. XLConnect specialized in the design, building, and support of networks for company wide document solutions.

The mid-1990s also saw Xerox launch a restructuring in 1994, leading to 10,000 job cuts over a three-year period. In February 1995 the company paid The Rank Organisation about $972 million to increase its stake in Rank Xerox to 80 percent. Then in June 1997 Xerox spent an additional $1.5 billion to buy Rank out entirely. With full control of the unit, Xerox renamed it Xerox Limited. That same month G. Richard Thoman, who had been senior vice-president and chief financial officer at IBM, was named president and chief operating officer of Xerox, with Allaire remaining chairman and CEO.

In April 1998 Xerox announced yet another major restructuring, as its shift to the digital world led it to spend more on overhead than its competitors. The company planned to eliminate 9,000 jobs over two years, taking a $1.11 billion after-tax charge in 1998’s second quarter in the process. The cuts came at a time when Xerox was enjoying record sales and earnings as well as a surging stock price, so the company was clearly proactive in maintaining the momentum it had gained through its impressive 1990s resurgence.

Xerox has become virtually synonymous with photocopying. Xerox was a small company in 1960 when its first practical copier was introduced, but the company zoomed into the Fortune 500 during the next few years. About 1,800 people worked there in 1959, and 55,000 in 1969.

The company began in 1906 as a photography-paper business named the Haloid Company in Rochester, New York. Its neighbor, Kodak, ignored the company and Haloid managed to build a business on the fringe of the photography market. In 1912 control of the company was sold for $50,000 to Rochester businessman Gilbert E. Mosher, who became president but left the day-to-day running of the company to its founders. Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company’s market share, Haloid’s board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid’s sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided that Haloid should buy the Rectigraph Company, a photocopying machine manufacturer that used Haloid’s paper. Haloid went public to raise the money, and selling Rectigraphs became an important part of Haloid’s business.

In 1936 Haloid’s 120 employees struck for benefits and higher wages. Mosher proved intransigent, and Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the armed forces needed high-quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.

Haloid needed to come up with new products, particularly after a showdown between Mosher, who wanted to sell Haloid to another company, and Wilson, who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio to produce a machine based on a new process called xerography.

Xerography, a word derived from the Greek words for “dry” and “writing,” was the invention of Chester Carlson. Carlson was born in Seattle, Washington in 1906 and was a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, in 1938 Carlson invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.

In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, spelled with a capital “X”. The machine, which required much of the processing to be done manually, was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid’s large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing— an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.

In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to corporations like RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the State of Michigan. Meanwhile, Haloid’s other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.

In 1953 Carlson received the Edward Longstreth Medal of Merit for the invention of xerography from the Franklin Institute. In 1955 Haloid revamped its 18 regional offices into showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid’s semi-automatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson’s son, formed an overseas affiliate called Rank Xerox with the Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market. In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company’s future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier. Introduced in 1960, it was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising
campaign, and placed ads in magazines and on television programs where it hoped business people would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.

Demand for the 650-pound 914 exceeded Haloid-Xerox’s most optimistic projections, despite its large size. Fortune later called it “the most successful product ever marketed in America.” Sales and rental of xerographic products doubled in 1961, and kept growing. In 1961 the company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations became the Haloid photo division. In 1962 Xerox formed Fuji Xerox in Japan with Fuji Photo Film Company. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914, more than Haloid’s total earnings from 1950 to 1959, but the 914 led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914; although this machine sold well, it was not very profitable, and Xerox has depended on its larger machines ever since.

With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox’s chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States and, in 1969, moved to Stamford, Connecticut.

In the late 1960s Xerox began to focus less on copiers and more on designing an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.

Scientists at PARC invented what may have been the world’s first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In December of 1989 Xerox sued Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple co-founder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox’s work, and thus made it original.

PARC’s innovations were overlooked by Xerox; the computer division and the copier division competed for resources and failed to communicate. Products were released by the office products division in Dallas, Texas that PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, further stifling innovation.

In April of 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM’s machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM’s reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became the defendant repeatedly for antitrust violations, including a suit by the Federal Trade Commission. Distracted from its market by legal battles, Xerox lost its lead in the industry when Kodak came out with a more sophisticated copier. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.

Xerox had become inefficient as its executives concentrated on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine it failed to challenge the new products on the market, and Xerox’s market share dropped.

By 1985 Xerox’s worldwide plain-paper copier share had dropped to 40%, from 85% in 1974. Yet Xerox’s revenues grew from $1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, thus depleting its lease base.

Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns a month. Ricoh introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging Xerox’s market share in higher-end machines.

In the late 1970s Xerox began reorganizing, making market share its goal, and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share but intense price competition kept copier revenues around $8 billion for most of the 1980s.

In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM’s and captured over 20% of the electric typewriter market. By January of 1983 Xerox had unveiled a Memorywriter that could store large amounts of data internally. In 1982 the 10-Series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-Series machines used technology developed at PARC, which was becoming more integrated with the company. Xerox began gaining market share for the first time in years, and morale improved.

Xerox also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved to be an expensive flop, however, and by 1989 the company planned to close its workstation hardware business. Xerox also moved to protect its 50% share of the high-end market in the United States with machines that make 70 or more copies a minute. The major high-end competition was Kodak, but the Japanese—led by Ricoh— were again launching a drive for this market.

During the 1970s Xerox had also diversified into financial
services. In 1983 it bought Crum and Forster, a property casualty insurer, and in 1984 it formed Xerox Financial Services (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50% of Xerox’s income—$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox “A” credit rating.

Xerox spent more than $3 billion on research and development in the 1980s looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.

In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox’s comeback was so impressive that in 1989 its Business Products & Systems unit won Congress’ Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox had demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition.

In 1990 when David T. Kearns, CEO since 1932, retired to become U.S. Deputy Secretary of Education, and Paul A. Allaire, a career Xerox man, was named to replace him, industry analysts speculated that Allaire would have to repeat the feats of the 1970s if Xerox was to survive as an independent corporation. A restructuring of company management occurred almost immediately. The office of the president was transformed into a document processing corporate office led by Allaire and including executive vice presidents A. Barry Rand and Vittorio Cassoni, and senior vice presidents Mark B. Myers and Allan E. Dugan. Two years later, Xerox announced plans to restructure the company as well. Three customer service operations units were created in Connecticut, New York, and England. In addition, nine document processing business units were established, each of which is headed by a president responsible for the profitability of the unit.

During the seven-month period from September of 1990 to March of 1991, Xerox introduced five new types of printers: the Xerox 4350, Xerox 4197, Xerox 4135, Xerox 4235, and Xerox 4213. These printers were designed to handle a wide variety of office needs from two-color printing to desktop laser printing. In October of 1990 the Docu-Tech Production Publisher signaled Xerox’s intent to take advantage of what the company foresees as an industry move from offset printing to electronic printing and copying.

The introduction of the Xerox 5775 Digital Color Copier was met with great fanfare and was expected to rejuvenate sales. Xerox has also continued to update and improve its facsimile machines by developing a personal-sized model that can be used as a copier as well as a telephone, and by developing thermal, recyclable fax paper. In May 1992, Xerox introduced Paperworks, software that makes it possible to send documents to a fax machine directly from a PC.

Despite these new products, financial and legal woes continued to plague Xerox in the early 1990s as American economic conditions worsened. After earnings of $235 million in the fourth quarter of 1990, Xerox reported only $91 million in profits for the same period the following year. Earlier in 1990, just four months after the creation of the X-Soft division, which was to develop and market the company’s software products, Xerox announced that it would lay off 10% of X-Soft’s employees. In February of 1992, the company offered severance pay to 6,000 of its American employees in an attempt to reduce the work force by 2,500 by July.

By the end of 1991, Xerox was announcing the sale of three of its insurance wholesalers. Crum and Forster sold Floyd West & Co. and Floyd West of Louisiana to Burns & Wilcox Ltd. London Brokers Ltd. was sold to Crump E & S. Moreover, several lawsuits resulted in losses for Xerox. In February of 1992 Xerox was ordered to pay Gradco Systems, Inc. $2.5 million to settle a patent dispute; and a suit settled in favor of Monsanto a month later was expected to cost Xerox $142 million to clean up a hazardous waste dump site.

Xerox has become virtually synonymous with photocopying. Xerox was a small company in 1960 when its first practical copier was introduced, but the company zoomed into the Fortune 500 during the next few years. About 1,800 people worked there in 1959, and 55,000 in 1969.

The company began in 1906 as a photography-paper business named the Haloid Company, in Rochester, New York. Its neighbor, Kodak, ignored the company, and Haloid managed to build a business on the fringe of the the photography market. In 1912 control of the company was sold to Rochester businessman Gilbert E. Mosher for $50,000. Mosher became president but left the day-to-day running of the company to its founders. Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company’s market share, Haloid’s board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid’s sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided Haloid should buy the Rectigraph Company, a photocopying-machine manufacturer that used Haloid’s paper. Haloid went public to raise the money, and selling Rectigraphs became an important part of Haloid’s business.

In 1936 Haloid’s 120 employees struck for benefits and higher wages. Mosher proved intransigent, and Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the armed forces needed high-quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.

Haloid needed to come up with new products, particularly after a showdown between Mosher—who wanted to sell Haloid to another company—and Wilson—who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio, to produce a machine based on a new process called xerography.

Xerography, a word derived from the Greek words for “dry” and “writing,” was the invention of Chester Carlson. Carlson was born in Seattle, Washington, in 1906, and was a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, in 1938 Carlson invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.

In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, spelled with a capital “X”. The machine required much of the processing to be done manually. The XeroX was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid’s large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing, an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.

In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to corporations like RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the state of Michigan. Meanwhile, Haloid’s other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.

In 1953 Carlson received the Edward Longstreth Medal of Merit from the Franklin Institute, for the invention of xerography. In 1955 Haloid revamped its 18 regional offices to make them showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid’s semi-automatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson’s son, formed an overseas affiliate called Rank Xerox with The Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market. In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company’s future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier, introduced in 1960. It was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, and placed
ads in magazines and on television programs where it hoped business people would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.

Demand for the 650-pound 914 exceeded Haloid-Xerox’s most optimistic projections, despite its large size. Fortune later called it “the most successful product ever marketed in America”. Sales and rental of xerographic products doubled in 1961, and kept growing. In 1961 the company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations became the Haloid photo division. In 1962 Xerox formed Fuji Xerox in Japan with Fuji Photo Film Company. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914, more than Haloid’s total earnings from 1950 to 1959, but the 914 led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914. Although this machine sold well, it was not very profitable, and Xerox has depended on its larger machines ever since.

With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox’s chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States, and, in 1969, moved to Stamford, Connecticut.

In the late 1960s Xerox began to focus less on copiers and more on designing an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.

Scientists at PARC invented what may have the world’s first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In December 1989 Xerox sued Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple co-founder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox’s work, and thus made it original.

PARC’s innovations were overlooked by Xerox; the computer division and the copier division competed for resources and failed to communicate. Products were released by the office products division in Dallas, Texas, that PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, further stifling innovation.

In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM’s machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM’s reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became the defendant repeatedly for antitrust violations, including a suit by the Federal Trade Commission.

Distracted from its market by these legal battles, Xerox lost its lead in the industry when Kodak came out with a copier that was more sophisticated than Xerox’s. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.

Xerox had become inefficient as its executives concentrated on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine it failed to challenge the new products on the market, and Xerox’s market share dropped.

By 1985 Xerox’s worldwide plain-paper copier share had dropped to 40%, from 85% in 1974. Yet Xerox’s revenues grew from 1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, depleting its lease base.

Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns a month. Ricoh introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging Xerox’s market share in higher-end machines.

In the late 1970s Xerox began reorganizing, making market share its goal, and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share, but intense price competition kept copier revenue around $8 billion for most of the 1980s.

In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM’s and captured over 20% of the electric typewriter market. By January 1983 Xerox had unveiled a Memorywriter that could store large amounts of data internally. In 1982 the 10-series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-series machines used technology developed at PARC, which was becoming more integrated with the company.

Xerox began gaining market share for the first time in years, and morale improved. It also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved to be an expensive flop, and by 1989 the company planned to close its workstation-hardware business. Xerox also moved to protect its 50% share of the high-end market in the United States with machines that make 70 or more copies a minute. The major high-end competition was Kodak, but the Japanese—led by Ricoh—were again launching a drive for this market.

During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster, a property-casualty insurer, and in 1984 it formed Xerox Financial Services (XFS),
which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50% of Xerox’s income—$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox “A” credit rating.

Xerox spent more than $3 billion on research and development in the 1980s, looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.

In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox’s comeback was so impressive that in 1989 its Business Products & Systems unit won Congress’s Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition. Many analysts believe that Paul A. Allaire, a career Xerox man named CEO in 1990, must repeat that performance if Xerox is to survive as an independent corporation.

Xerox Corporation

Computer Sciences
COPYRIGHT 2002 The Gale Group Inc.

Xerox Corporation

The roots of Xerox Corporation and its history of innovation started growing back in 1938. In October of that year, patent attorney Chester Carlson (1906–1968) invented the first xerographic image. Carlson believed that the world needed an easier and cheaper way to make copies of important documents. Previously, carbon paper, printing presses, or retyping were required to create a document copy.

However, it took nearly ten long years before Carlson could find a company that would develop his invention into a useful product. The Haloid Company, a small photo-paper maker in Rochester, New York, took on the challenge and promise of xerography. In 1949 Haloid introduced its first xerographic machine. Slow and messy, it required several steps to produce a decent copy—but it worked.

Birth of the Office Copier

Not until 1959, twenty-one years after Carlson invented xerography, was the first convenient plain-paper office copier unveiled. By that time, Haloid had changed its name to Haloid Xerox Inc. The Xerox 914 copier—so named because it could copy pages up to nine by fourteen inches—could make copies quickly at the touch of a button. It was a phenomenal success! By 1962, some 10,000 copiers had been shipped. By 1963, Xerox Corporation
had dropped the "Haloid" and had grown to a $22.5 million company, up from $2 million just four years earlier.

Xerox Corporation's inventive researchers and engineers went on to develop hundreds of industry-leading hardware and software products after the Xerox 914. By 2000 Xerox had become a $19 billion company selling document management equipment at almost every price and speed, including color and black-and-white digital copiers, network printers, fax machines, multifunction devices, and software.

That first plain-paper office copier truly revolutionized the office—not only replacing carbon paper but also changing the way people used documents to communicate. Xerox's growing body of knowledge about office processes, as well as expertise in engineering, manufacturing, and technology, made Xerox the perfect breeding ground for new ideas about how to make the office—and office workers—operate better.

From Copiers to Computers

In 1970 Xerox gathered a team of world-class researchers to study the way that information was created, transported, and shared. Their mission was to create "the architecture of information." The scientists of the new Palo Alto Research Center (PARC) in Palo Alto, California, were encouraged to dream, invent, and discover, as well as to push the outer limits of current technology. At the time, computers were still room-sized devices that only the most expert computer programmers could manage. But the PARC scientists' vision was to create simpler computers that could help people work together even more powerfully than a copier could.

By 1973 pioneering PARC researchers had changed the course of the computer industry and developed the world's first personal computer, known as the Alto. The Alto embodied several PARC innovations, including a graphical user interface (GUI) , what-you-see-is-what-you-get (WYSIWYG) editing, overlapping "windows," and the first commercial mouse, so users could point-and-click their way through tasks. All of these features are standard components in Apple Macintosh and Microsoft Windows-based personal computers today.

PARC scientists also recognized a far more powerful role for computers to play. They networked, or connected, Altos via another PARC invention, the Ethernet, to further enhance people's ability to interact. Ethernet ultimately became a global standard for interconnecting computers on local area networks.

PARC also invented the laser printer, which was a natural extension of Xerox's expertise in putting marks onto paper. Laser printers allowed users of the Alto—and users of its successor, the Star, launched commercially in 1981—to simplify putting an exact copy of what they saw on their computer screens onto paper.

These, and dozens of other pioneering technologies from PARC, fundamentally changed the office—and the world. Xerox did not fully commercialize its personal computer technologies because at the time, the corporation remained focused on the core business from which it started: copiers. Instead, companies such as Apple Computer, Microsoft, and other Silicon Valley start-ups visited Xerox PARC's labs, licensed or replicated the technologies, and applied them to their own products and businesses.

Xerox's innovation continues through its research centers today, and PARC is widely regarded as one of the top corporate research facilities in the world. PARC scientists aggressively create new ways to manage electronic documents, inventing better tools for tapping the resources of the World Wide Web, building knowledge into smart matter , and researching how people create and manage electronic and paper information. Although the personal computer revolution is largely past, Xerox PARC remains part of the continuing evolution of computing technology for the future.

Xerox Corporation

Xerox Corporation A US-based company, best known for its copiers, printers, and other reprographic equipment. In 1970, Xerox established its Palo Alto Research Center (Xerox PARC) and in 2002 this was spun off into separate company. It is through Xerox PARC that Xerox has made its impact on the computer industry, with the development of graphical user interfaces, the Smalltalk object-oriented development system, and Ethernet.

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